Robert P. McAdam - Executive Vice President of The Strategic Market Segments Group

Thomas Wessel - Vice President of Worldwide Sales

Margaret K. Seif

Good morning, everyone. It is 9:00 and we're ready to begin our Annual Meeting of Shareholders of Analog Devices. My name is Margaret Seif, I'd like to welcome everyone here today joining us at our corporate headquarters and also those of you listening via the web. Please note that rules of conduct and procedure apply to this meeting and are available in the voting area over there if you wish to inspect them. Our agenda today will begin with prepared remarks from our Chairman, Ray Stata. We'll then proceed to the formal meeting, and we will conclude with remarks by our CEO, Jerry Fishman. So without further delay, I'd like to introduce ADI Co-Founder and Chairman of the Board, Ray Stata.

Ray Stata

Thank you, and good morning, everyone, and thank you, Marnie, for the introduction. And I'd like to add my welcome to those who come to our 2013 Annual Stockholders Meeting. I'll begin by introducing the corporate officers who are with us today. First, Vincent Roche, the President of Analog Devices. Vincent, I think -- particularly take -- make note of the fact that I'm sure all of you seen that Vincent was promoted to President this past year, and he's taken a lot of new responsibilities, and along with him, a number of others in the senior management ranks, who are promoted to share the load, and Jerry is going to talk a bit about -- more about that in his remarks. Also here is David Zinsner, our Vice President of Finance and Chief Technical Officer; Sam Fuller, Vice President of Research and Development and our Chief Technical Officer; Bill Matson, Vice President of Human Resources; Robbie McAdam, Executive Vice President of our Strategic Business Segments Group; and Dick Meaney, Vice President of our Products and Technology Group; and Marnie Seif, Vice President, General Manager and Secretary -- General Counsel, I should say; Thomas Wessel, Vice President of Sales; and Robert Yung, Vice President of Corporate Development and Chief Strategic Officer; and finally, Jerry Fishman, our CEO.

I'd also like to just introduce the Board of Directors who are with us today: Jim Champy; John Hodgson -- Jim, John Hodgson; Yves-Andre Istel; Neil Novich; Grant Saviers; Paul Severino; Ken Sicchitano. And I'd also like to extend a special welcome to Lisa Su, who joined us last year as our newest director. Lisa has a distinguished record of leadership both in the managerial and the technical arena and a long career at both Freescale, IBM, and more recently, at AMD where she is the Senior Vice President and General Manager of Global Business Units. So Lisa joined us in June of 2012 and is serving on our -- as a member of our nominating and governance committee, and we're pleased that she's sitting for election here today.

Next, I'd like to introduce to you our independent auditors, Ernst & Young, and we're asking our shareholders today to ratify the selection of Ernst & Young as our auditors for 2013, and representing EY here today is Michael Terrell [ph]. And finally, I'd like to introduce Mark Borden, a long friend of Analog Devices, our General Counsel from Wilmer Hale.

So before we begin the formal part of our meeting today, I wanted to mention just a few of the highlights for 2012. First, in April of last year, Analog's stock began trading on the NASDAQ, which I think is now recognized throughout the world as the leading exchange for innovative high-technology companies. In December of last year, Analog Devices was added to the NASDAQ 100, which is an index of the largest NASDAQ companies rated by their market cap. Our market cap today stands at about $14 billion. If you happened to be in New York -- in Time Square last week, you may have seen our logo, up on the iconic NASDAQ tower. Here's what you would have seen.

[Presentation]

Ray Stata

So we -- Dave tried very hard to get them to play that on New Year's Eve, but somehow he failed. So the other thing I'd point out is that in 2012, Analog was named a top 100 innovator by Thomson Reuters. This is the second time that Analog has been so recognized, and that's quite a distinguished recognition because it's done on the basis of rather thorough examination of what qualifies for that amongst many, many thousands of firms. In 2012, we were also published -- we also published our sustainable report, the third one we reported, which chronicles Analog's leadership in environmental health and safety stewardship. We achieved the highest score amongst all the Analog semiconductor companies for the quality of our disclosures and for our performance on the actions taken to mitigate air, water and climate impact. So Analog's score rose to 76 in 2012, up from 49 the year before. We were also honored as one of America's greenest companies, again, for the third consecutive year by BusinessWeek. And moreover, Forbes Magazine reported that Analog Devices was named to the top 25 list of socially responsible dividend paying stocks. So all in all in many ways, 2012 was a very successful year for Analog Devices, for our employees, our customers, our stockholders, for everyone, and I'd like to just congratulate the team and all of our employees for the outstanding job that they did once again in maintaining our leadership in the high-performance, surreal world signal processing industry. Thank you.

Margaret K. Seif

Okay. So we'll now have the formal part of the meeting, where we take the votes on the matters described in our proxy statement. Once all of the votes are taken, we will adjourn the meeting, and afterwards, our CEO, Jerry Fishman will make a presentation and answer any appropriate questions you may have. As indicated in the notice of meeting and proxy statement that we mailed to our shareholders, we're here today to consider and vote on the following business items: The election of our directors; the compensation of our named executive officers; the approval of our executive section 162(m) Plan; and the ratification of Ernst & Young as our independent registered public accounting firm for fiscal 2013. We will consider each item in turn today. The polls for each matter being voted on at this meeting will open when the matter is called to a vote, and will remain open until I announce that the polls are closed. No ballots or proxies or revocations or changes will be accepted after the polls are closed and we will announce the results of the voting on each proposal immediately following the tabulation of voting.

I received an affidavit from Broadridge Financial Solutions, certifying that the notice of Annual Meeting and proxy statement were sent to all shareholders of record as of January 11, 2013. This affidavit is available for inspection by any shareholder in the voting area. Are there any shareholders present here today who wish to vote in person? If so, raise your hands. If you want to, there are ballots over here. I've been informed by Broadridge that there are present at this meeting in person or by proxy, a majority of the outstanding and issued shares of common stock entitled to vote on each of the proposals described in the notice of meeting. So a quorum exists with respect to each proposal.

The first matter for our shareholders to vote on is the election of 10 directors for a term of 1 year to expire at the 2014 Annual Meeting. The nominees for election are: Ray Stata, Jerald Fishman, James Champy, John Hodgson, Yves-Andre Istel, Neil Novich, Grant Saviers, Paul Severino, Ken Sicchitano, and Lisa Su. So any discussion on this motion before we vote? Okay, we'll now vote.

The next matter for the shareholders to vote on is a nonbinding say on pay vote regarding the compensation of our named executive officers described in our proxy statement. Is there any discussion on this motion before we vote today? So we will now proceed to a vote.

The next matter for the shareholders to vote on is approval of our executive 162(m) Plan as described in our proxy statement. Is there any discussion on this motion today before we vote? Okay, we'll now vote.

And the final matter for our shareholders to vote on is the ratification of the selection of Ernst & Young as our independent registered public accounting firm for the current fiscal year ending November 2, 2013. Is there any discussion on this motion before we vote today? We will now vote.

This concludes the business items on the agenda for this Annual Meeting. If you have not yet voted and would like to do so, you may proceed to the voting area now.

Hearing nothing, I will ask, have the ballots been collected?

Unknown Attendee

Yes.

Margaret K. Seif

The polls are now closed. And we will have a report of the preliminary results of today's voting.

Unknown Attendee

On the motion to elect the 10 nominees as directors of Analog Devices, each of the nominees has received a majority of the votes cast in favor of their election. On the motion to approve the compensation of our named executive officers, a majority of the total number of votes cast has been voted in favor of this proposal. On the motion to approve our executive section 162(m) Plan, a majority of the total number of votes cast has been voted in favor of this proposal. And finally, on the motion to ratify the selection of Ernst & Young as our independent registered public accounting firm, a majority of the votes -- a majority of the total number of votes cast has been voted in favor of this proposal.

Margaret K. Seif

Thank you. As a result of the voting, each of the nominees has been elected a director. The compensation of our named executive officers has been approved. Our Analog Devices executive section 162(m) Plan has been approved and Ernst & Young has been ratified as our independent auditor for 2013. Following certification of today's voting, the final results on each proposal will be filed with the SEC, and will be posted on our website at www.analog.com within 4 business days. There being no further business to come before the meeting, I'm going to adjourn the formal part of the meeting.

But before I turn this meeting over to Jerry Fishman, please note, here comes the sexy part, the various remarks that may be made about future expectations, plans, projections and prospects for ADI constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section included in our most recent quarterly report on Form 10-Q, which is on file with the SEC. In addition, any forward-looking statements represent expectations only as of today. While we may elect to update these statements, we specifically disclaim any obligation to do so. Any forward-looking statements should not be relied upon as representing our estimates or views as of any date after today. Our comments today may also make reference to non-GAAP financial measures, and reconciliations of these non-GAAP items to their most directly comparable GAAP measures can be found in our first quarter earnings release, which was issued February 19, 2013, and a copy of that is posted on the Investor Relations section of our website at analog.com. Thank you for your attention and attendance. Please enjoy this brief video while we prepare the podium for Mr. Fishman. Jerry will deliver his remarks, and then answer any appropriate questions you may have.

[Presentation]

Jerald G. Fishman

Well, good morning. For those old timers that have come to the meeting for many years, this used to take us about 10 days of preparation and 160 slides to explain so this is a lot better. So it shows how far the technology has really come. One thing I'd like to add my good morning to the welcome that Ray provided earlier this morning to our Annual Shareholders Meeting. I think as you can see from the brief video clip, the impact of ADI's technology on so many different applications is really profound. We're helping our customers develop advancements in electronics that are making this world we all live in safer, faster, greener, smarter and better in so many ways. It turns out it's a very, very exciting time to be in Analog Devices, and the opportunities for the kinds of products and the kind of technology that we have at Analog is really in many ways endless. We're, of course -- we're not immune-ed from the external environment that we all have to live in, and in our 2012, the economy was in tough shape. It was very uncertain and it was difficult in most regions in the world and that certainly impacted the whole semiconductor industry and we're naturally part of that. But even with all those headwinds in 2012, we did manage to capture the opportunities that were in front of us and we gained even more focus on our business on the things that we really want to do and that we're very good at doing. Our success, really, is driven by 3 very, very simple differentiators.

First, we have a very focused strategy, and we don't divert from it. We have a very clear sense of purpose of what makes Analog unique in the eyes of our customers. And I think we're also blessed with a very strong and experienced leadership of some of the most creative and talented and innovative people in the entire analog industry. Our strategy at Analog in simple terms is to focus on markets, customers and applications that have the potential, the real potential, to grow at a faster rate than the overall semiconductor market. In these areas, we target most of our resources to solve the most difficult signal processing challenges by providing game-changing technology and world-class service and reliability and quality to our large group of customers. In what has turned out to be over the last 10 or 15 years an incredibly volatile industry, our strategy allows us to consistently generate very strong profitability and very strong cash flow in good years and also in bad years.

With the very robust margins we earned, we're able to maintain very high levels of R&D investment to feed the cycle of innovation in Analog that has lasted now for almost 45 years, and allows us to continue to provide our customers with the breakthroughs that they need to continue their market leadership. Importantly, our returns that we get also allow us to continue to enhance the returns that we're able to provide to our shareholders. The strength of our business strategy was clearly evident in 2002 -- in 2012 rather, which was a year in which massive reductions in capital spending in the industrial market and the communications infrastructure market really did limit the opportunities available for companies like Analog Devices. For those who've been with Analog many years, I think you might remember that capital spending in both either communications or industrial products is really the main driver of our business. It has been that for many years and it continues to be that. So when industrial or capital spending -- industrial capital spending goes down, our business tends to go down. And when infrastructure and industrial capital spending go up, we react very quickly to that, and I think this cycle will prove that to be the case again. But yet, despite all the pressures that we had in 2012 and all the uncertainty that we experienced through the year, we did manage to generate $2.7 billion in revenues. We did manage to generate 64.5% gross margins, and our operating margins were about just over 30% for the year, which I think most companies would be very proud of no matter what the economics were in the world. Importantly, also, we generated very strong cash flow in 2012. We generated over $815 million with 30% of sales and operating cash flow, and free cash flow was just under $700 million with almost 25% of sales, which are very strong statistics, again, by virtually any measure. The cash generation capability in Analog has provided the opportunity to consistently improve our shareholder returns. In 2012, we repurchased approximately $160 million of our common stock. This brings our cumulative repurchases since we began our share repurchase program back in 2004, about 8 or 9 years ago, to a cumulative total of $4.4 billion, which represents just under 130 million shares of our stock that we bought back. In 2012, we also increased our quarterly dividend by 20% over the previous year, and we paid out $345 million in dividends to our shareholders.

Since the first dividend was paid around 2004, I believe was the first year we paid the dividend, almost 10 years ago, Analog has increased our dividend 10x and has paid out $2 billion in dividends to our shareholders. So in total, between share repurchases and dividends, we've returned over $6 billion to our shareholders since this program began. As a result of the performance that we've had, also, what we see is increasing confidence amongst most of our large shareholders and our long-term prospects. Our total shareholder return last year, which is the sum of stock price appreciation plus dividends was approximately 10% for the year, and that certainly is at the high-end of what any of our peers produced last year. In addition, since 2007, as you can see on the chart, we've outperformed the cumulative shareholder return of the S&P 500 Index and also the S&P Semiconductor Index. So it just really shows that if you do the right things and get the right returns, you get rewarded by your shareholders. I think this chart is very stark evidence of that.

But certainly, without a very clear sense of purpose, these results simply would not be achievable. For ADI, our mission has remained the same for many, many years, and that is to be the world's best and most innovative signal processing company. Yet, how we achieve this mission continues to evolve over time according to the changing market dynamics and the changing needs of many of our largest customers. A foundational and very critical element of what we do has always been, and I think will always continue to be, the development of game changing core technology. We focus on technology innovations and converters and linear products and radio frequency products and micro-machine products and power products and DSP. And those products create competitive advantage and maintain our reputation for outstanding service and quality and reliability as well. Together, these technologies and the products on those technologies have strengthened our position as the very best brand with our broad base of tens of thousands of customers around the world that buy our products. We then leverage those technologies into more market-driven integrated solutions that our largest customers need to innovate, of course, a very diverse set of applications, many of which you saw on the video, such as smart energy grids, smart phones, advanced automotive safety, fuel efficiency systems, high bandwidth communications, nonintrusive medical diagnostics and patient monitoring applications and robotics and industrial controls in most of the factories of the future. While the path to our missions continue to change, our internal environment remains mostly the same as it's been for many years. ADI remains a place where the most talented technologist come together to explore new ideas, to learn from the best in class that work for Analog Devices, and ultimately, many of them choose to build their entire career at Analog Devices, and we hope that continues into the future. That's certainly what has made us successful for over 45 years and has allowed us to develop a portfolio and an institutional knowledge base in our business that today remains simply unmatched by any other competitor. This very deep and experienced team we have at Analog has also provided us with a very strong bench to develop the next generation leaders for Analog Devices.

And in 2012, as Ray mentioned in some of his earlier comments, we promoted a number of long-term ADI executives to take on increased responsibility in our new organization. First and certainly most importantly, Vince Roche, who has been with Analog for 24 years, he's a youngster at Analog, was promoted to be the President of Analog Devices. Vince and I have worked together for many, many years, for a couple of decades, and I have always found him to be an enormously talented executive, who knows our business exceptionally well, in his insights in both the technologies that we develop and the markets that we serve and also he's built relationships with the largest customers around the world in virtually every location. Vince used to run our sales organization. He also ran our market segment organization so he had ample chance to really understand what's going on with most of our customers. And now, in his new role, apply that understanding to the markets we serve and the products that we develop. Also, in 2012, we promoted another short-term Analoger, Robbie McAdam, how many years is that Robbie?

Robert P. McAdam

29.

Jerald G. Fishman

29. To lead our market segment strategies, which I alluded to a little earlier, which is the way we take our core technology and pick the places where customers want more integrated and more whole solutions to their products, and Robbie's institutional experience and the knowledge he has of our customers and our products, and the markets is really truly unique, and we're fortunate to have somebody of that capability to do that job. Also, Ray mentioned, Dick Meany, who's now heading up all our product development at ADI, which is one challenging job. One of the hallmarks at Analog for many years has always been it was very -- we had that responsibility diffused through the organization, and we had at onetime 73 product lines, all of which were making their own decisions, and if they ever converged with a customer, it was because God was looking at us favorably. And now, with the pace of technology development that's going on and the urgency to get the right products to the right customers at the right time, this is an enormous responsibility and I've always had a great deal of respect for Dick in terms of his ability to manage R&D in the company. And Dick asked for this job and he got it. So whatever complaints you have, Dick, it's not my fault. So I think Dick will really make a huge difference of being able to move technology from one area to another to get the true benefit of the scale of Analog's R&D investments and capability in many, many businesses around Analog. I think that's going to be a big improvement for us.

And also, we promoted Thomas Wessel to be Vice President of Worldwide Sales. Thomas came to us many years ago from our friends down in Dallas, Texas Instruments, and we've always had a great deal of respect for Texas Instruments' sales force, and Thomas, I'm not going to say anything more than that, and -- we are webcasting this, I guess, right? So I'll shut my mouth, and the -- I think Thomas brings a unique perspective of the real value of ADI's technology to our customers. Thomas, in his last job at Analog was very instrumental in building our automotive business up to now being nearly a $500 million business for us, and one of the fastest-growing business at Analog. So again, Thomas, he's a relative newcomer. How many years, Thomas?

Thomas Wessel

10 years.

Jerald G. Fishman

10 years. God, 10 years. And if he gets rid of that car and stops driving on the autobahn at a 110 miles an hour, I think he has a great future here. So I'm really convinced when you look at the people we have in place and the people that we're promoting. I'm convinced that we have both the skills and the organizational determination to take ADI to the next level over the next 5 to 10 years. As I said a few minutes ago, it's a very exciting time to be part of Analog Devices, whether you're an employee, whether you're a customer or whether you're a shareholder.

Just recently, as part of our Analog -- our annual planning process, we began to take an even longer-term view of the strategic opportunities that are available for ADI. We've now extended the time dimension that we look at out to 5 and 7 and 10 years, and we realized as we did that, the tremendous wealth of opportunities for our technology that is available to Analog Devices in the next decade. As a result, I think we began 2013 with a lot of confidence that despite our great history and despite all the turmoil in the world still today, that Analog's best years are still ahead of us.

So in closing, I'd like to thank everybody who's listening, all our employees around the world for coming into work every day, believing they can do what nobody else can do year after year, and that really helps us and invigorates us all to achieve the mission that we've set out for the company. And also, our loyal shareholders who have been with us through thick and thin through good years and bad, we have a great base of shareholders that are mostly long-term holders that believe in what we do and believe, and really find that what we do is credible and have stayed with us and continued to be large investors for Analog for many, many years. And I know over the years, that's been a straining exercise for some investors. So that's all I have to say this morning. I'd be happy to answer any questions that you might have.

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